Revenue Management Must Overcome Several Challenges
to Create a Bigger Impact

By
Ritesh Gupta

July 24, 2012

IN-DEPTH:
Revenue management (RM) can contribute a lot more than it does
today in the travel industry. But to do so RM executives need to take a
longer
term view of enterprise value which may conflict with the short-term
optimization goals of their day jobs. They also need to think
strategically
about how RM principles can be extended to the customer and channel
space.

EyeforTravel’s
Ritesh Gupta investigates

RM
is uniquely positioned to steer the revenue process in the travel
industry. It
is expected that RM professionals will be increasingly pulled away from
the
day-to-day tactical rate setting or inventory allocation decisions to
share
their expertise in the broader marketing context.

RM
needs to integrate with all the disciplines – sales, marketing, channel
optimization, loyalty marketing and operations –to be more successful.

A stronger
contribution

The
focus is on making tactical RM decisions easier, not only from the
aspect of
inventory management, but also when optimizing prices.

In
the case of hotels, current systems or capabilities are restricted
primarily to
rooms, but if these are extended to other non-room items, in an
integrated
fashion, hotel groups would see improvement in operational efficiencies
across
the organization.

This
would free up the RM professionals to think more strategically, says
Dev
Koushik, director, revenue optimization and analytics, InterContinental
Hotels
Group.

It
is recommended that RMs’ contribution to the bottom line should be
stepped up
in two ways:

1.
By evaluating the value of a booking on a profit and not just a revenue
basis

2.
By evaluating a booking on a lifecycle and not just marginal basis.
This
involves considering the repeat business or lower price elasticity of a
customer to prioritize inventory access

Setting the
right price

In
a segment such as private aviation, RM is at the heart of the
commercial
process. “Aircraft charter is by its nature an asset utilization
business. As
such, profitability is determined by how effectively the assets are
used to
drive contribution to cover the high fixed costs of aircraft ownership.
Profit
is won or lost on how well revenue management drives core revenue
decisions,”
explains Theodore Botimer, VP revenue management, Xojet.

He
says there is a great deal of science around the optimal allocation of
inventory with a fixed set of price levels. Deciding how to change sets
of
price levels is much less clear. There is not as much research in the
area and
price change analysis has not been effectively implemented in the
revenue
management field.

“The
path to increased significance for RM would be through greater entry
into the
strategic management discussion. This change will require high level
revenue
management professionals/executives to take a longer term view of
enterprise
value which may conflict with the short-term optimization goals of
their day
jobs,” says Botimer.

Organizational
challenges

The
major challenges for RM professionals today related to communication
within the
organization and inter-departmental co-operation. Many of the policies
and
procedures implemented by revenue management can be undone – often
unknowingly
– by other departments.

“Plugging
the leaks associated with RM policy implementation has always provided
one of
the largest returns on investment,” says Botimer.

According
to Botimer, RM professionals have a great deal of knowledge about their
problem
and the potential returns from embracing revenue management within the
corporation. Partnering with other departments to build policies that
incorporate revenue-management thinking without alienating or devaluing
others
remains a constant challenge.

“RM
professionals who leverage their knowledge of the short term to impact
medium
and long-term problems effectively will gain greater prominence for RM
in their
organizations,” says Botimer.

If
they do not understand corporate objectives and perform the proper
analyses, RM
professionals will continue to be viewed as overly focused on the short
term.
“Pushing out revenue management thinking to the organization happens
organically over time, but true and immediate impact can come from RM
professionals who are skilled internal sales people within their
companies,”
says Botimer.

As
the planning horizon lengthens and there is greater focus on core
enterprise
value, the status of RM within the organization will accelerate.
Transactional
data is likely to be leveraged to the point where buying decisions can
be
analyzed more effectively at a detailed level.

EyeforTravel is a leading
business
intelligence
provider for the online travel and tourism industry. As well as
providing some
of the most in-depth research into global online travel markets and
trends,
EyeforTravel produces a series of senior executive travel conferences
on a
diverse range of topics including travel distribution, online
marketing, social
media, mobile and revenue management. For more information
visit www.eyefortravel.com.